Dollar General, Family Dollar Both Down 5%

By Sam Mamudi

Dollar General

Beware the cliff

Discount retail chains Dollar General Corp. (DG) and Family Dollar Stores Inc. (FDO) are both down about 5%, the biggest fallers on the Standard & Poor’s 500 index. (Dollar Tree Inc. (DLTR) is also falling, down 2%.)

Dollar General’s slide is at least partly due to its third-quarter results announcement. The results beat analyst expectations but according to reports disappointed on a slight tick down in gross profit due to higher markdowns and a smaller impact from price increases.

Family Dollar’s decline could just be that it’s suffering along with its rival. It’s worth noting, though, that yesterday’s close of $70.58 was near its all-time closing high ($73.26, on June 15).

It could also be the curse of the fiscal cliff; a Dow Jones Newswires story on Friday suggested dollar stores and their like may suffer if there’s no deal in Washington, D.C.:

If the payroll tax cuts put in place in late 2010 are allowed to expire at the end of the year, Morgan Stanley says retailers like Dollar General Corp., Dollar Tree Inc. and Family Dollar Stores Inc. could face a drop of 1% to 2% in comparable-store sales and a six cents to 10 cents a share loss in earnings per share in 2013.

“We estimate the payroll taxes deduction would decrease discretionary spending capability by 6% for those that make less than $40,000,” Morgan Stanley said. “As most households at this level spend all that is available to them, this should directly come out of discretionary spending.”

One would think the opposite case could also be made, that less money in consumers’ pockets will push more people to shop at dollar stores. But apparently nothing’s safe from the bad effects of the fiscal cliff.

Update: On Tuesday afternoon, analysts at BofA Merrill Lynch downgraded Dollar General’s stock to Neutral, while Family Dollar was also downgraded to Neutral by analysts at J.P. Morgan.

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